Acadia Healthcare Company Inc (ACHC) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Second Quarter 2010 Pioneer Behavioral Health Earnings Conference Call. My name is Karissa, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's call, Mr. Michael Wachs of CEOCast. Please proceed.

Thank you. Good morning, and thank you for joining us today. My name is Michael Wachs with the Company's outside investor relations firm. I would like to welcome you to Pioneer Behavior Health's 2010 Fiscal Second Quarter Conference Call. Before I turn the call over to Bruce Shear, the Company's Chief Executive Officer, and Paula Wurts, the Company's Chief Financial Officer, I would like to read the following statement.

On this conference call, this Company may make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include information about possible or assumed future results within operations or the performance of the Company and its future plans and objectives. Various future events or factors may cause the actual results to vary materially from those expressed in any forward-looking statements made today.

For a discussion of these factors and risks, you can see the Company's Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. PHC is under no obligation to update statements made today for subsequent developments. Now, I would like to turn the call over to Bruce and Paula to discuss corporate developments, financial results, and the business outlook. Paula?

Thank you, Michael. I assume most of you had an opportunity to review the press release we issued earlier today. I would like to discuss several of the highlights. Total net revenue from continuing operations was $12.9 million for the three months ended December 31, 2009, compared to $11 million for the three months ended December 31, 2008. Revenue increased due to an 18.7% increase in the net patient care revenue to $12 million for the three months ended December 31, 2009. I should note that revenue typically declines on quarterly sequential basis, as the December quarter is seasonally our slowest quarter due to the holiday season.

Revenue grew due to higher census across most of our facilities, including higher census at Seven Hills Hospital in Las Vegas and the Company's new Chemical Dependency Unit at Harbors Oaks in Michigan, which opened in September of 2009. These increases were partially offset by a 4.6% decline in contract support services revenue provided by Wellplace to $0.9 million. The decrease is due to the expiration of the Company's smoking cessation contract with a government contractor.

Income from operations improved $1.4 million to $0.5 million for the 2010 fiscal second quarter, compared to a loss of $0.9 million in the same period a year ago, and compared to a $0.4 million in the 2010 fiscal first quarter. The 2010 fiscal second quarter results were impacted by an expense of approximately $135,000 incurred in connection with the lease termination. Income before taxes was $0.5 million for the period ended December 31, 2009, compared to a pre-tax loss of $0.9 million in the year-earlier period.

Net income applicable to common shareholders was $0.3 million or $0.01 per diluted share, compared to a net loss of $1.7 million or $0.09 per share in the fiscal 2009 second quarter. The fiscal 2009 second quarter results included a loss of $1.3 million associated with the operations of Pivotal, which was sold in the third quarter of last year. The 2010 fiscal second quarter represented the Company's fourth consecutive quarter of profitability.

For the six months ended December 31, 2009, total net revenue from continuing operations was $25.5 million, compared to $22.7 million in the year-earlier period. Net patient care revenue was $23.8 million, compared to $2.7 million in the previous period. Income from operations was $0.9 million, compared to a loss of $1.3 million in the same six months in fiscal 2009. Net income applicable to common stockholders was $0.5 million or $0.03 per diluted share, compared to a loss of $2 million or a loss of $0.10 per share.

As of December 31, 2009, the Company's balance sheet was strong with cash and cash equivalents of $2.8 million. Stockholders' equity improved from $16 million at the end of June to $16.5 million. Days sales outstanding were 59 days for the six months ended December 31, 2009, compared to the previous quarter of 64 days.

During the second quarter, we purchased approximately 250,000 shares of stock in the open market as part of our stock buyback program, which has been extended to the end of our fiscal year. Now, I'd like to turn the call back over to Bruce to discuss operating results in more detail and the business outlook. Bruce?

Thank you, Paula. And good morning, everyone. Thank you so much for joining us. As you can see from the results, the second quarter, despite a seasonally low holiday season, represented another quarter of improved operating results where the Company experienced solid top line growth in net patient care revenue and continued to manage expenses closely.

During fiscal 2009, we made investments in several key facilities, which drove revenue growth. Specifically, the facilities at Capstone and Seven Hills played a key role in the Company's improved results, as well as the Company's new Chemical Dependency Unit at Harbor Oaks Hospital in Michigan, which opened in September. I am pleased to note that the 18.7% increase in net patient revenue occurred as a result of increased utilization at virtually all of our facilities.

I know many of you are wondering about the status of the CMS certification at Seven Hills. We continue to progress and wait. Although the timing of when we receive it is out of our control, I am told by others in our field that what we are going through is not unusual. Regardless, we expect our overall business to continue to improve and grow in Las Vegas.

One of the catalysts for our business this year could be the implementation of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. The act requires most group health plans to provide more generous coverage for treatment of mental illnesses comparable to what they provide for physical illnesses. We believe that as payers are required to implement this beginning during the second half of the calendar year that it will drive increased utilization of all of our facilities, as it will be easier for patients to get into treatment and get better reimbursements.

Now, I'd like to take a moment to discuss our business outlook. As you can see from our financial results, we continue to improve our operating results. We expect these trends to continue during each sequential quarter this year and are even more confident, as we grew during a seasonally slower period. It is significant to note that we had growth in both revenue and significant growth in profitability sequentially from the first quarter to the second quarter. [Thanks to our sales] should continually improve, driving both top line growth and improved profitability.

Because we feel that our operations are stable, we look for acquisition opportunities to enhance our organic growth. We believe the best way to utilize our strong balance sheet is to find synergistic companies that will make PHC larger and better able to absorb the costs of being public. We are looking at a number of them closely right now. There are many private companies today that are looking for an exit strategy. And we are eager to expand within our targeted geographical area.

Now, I'd like to open the call up to questions after our brief comments. And, operator, so if you can open the call up to questions we will be happy to field them.

(Operator Instructions). And your first question comes from the line of Walter Schenker of Titan Capital. Please proceed.

Hi, Bruce.

Good morning.

Clearly, everybody on the call would hope that we would get to a point on Seven Hills where I don't get to ask the question. And I know you did partially address it. But this is now at least a year, anyway, beyond your original expectations. I know we've added some consultants and other things, or you have. This is a brand new facility. Is there any additional color you can give us as to why the hang-ups continue? I realize there's a government bureaucracy involved. But at some point, that starts to wear thin.

Well, first of all, it's been five months since the first survey. So, we've been open for a year, but it's been five months since the first survey. All I can comment on is that we have engaged folks to make sure that we're at the ready 24/7, and continue to do survey reviews so that the days they show up it will be smooth and easy. And we confirmed with the regulatory body that we're in the queue for an onsite unannounced inspection. It could be any day.

My folks -- and, again, as you know I serve on the Board of Directors of the National Association of Psychiatric Health Systems who experiences this on a daily basis. And they tell me that there's nothing unusual about the timing. It could be today. It could be a month from now. We believe it will be soon. And other than that, we just continue to operate our business and improve our mix. And we'll have a number of opportunities that we'll be announcing at Seven Hills in the next few weeks, too.

I'm sorry. Opportunities that you haven't announced? Then you just did it. Is further opportunities to expand and enhance the utilization?

Correct.

Okay. And second question, and then the third will just be a comment, could you just generally give a comment on your price versus cost for your, which is basically Vegas, capitated services?

Well, our non-capitated business reimbursement is significantly higher. And so I'm not so sure that I'm totally understanding your question.

Okay. I'll restate the question. We did run into a place in the past where we had a cost-price squeeze in our capitated business. A year ago we raised prices, which seemed to alleviate that problem. How would you qualitatively comment on your current pricing versus your cost and capitated business?

Harmony Healthcare is now profitable again. So, the impact of the rate increases that we had a few months ago have made a difference and put that division into the black.

In the black in getting adequate returns?

I think so. Yes.

Okay. And, lastly, I understand the benefit of expanding the revenue base through acquisitions. However, I will repeat the comments we've made and I've made to you many times. I know you've done a little of it. I still think at the multiple of expected earnings and the multiple of revenues doesn't lever the overhead. I'd be very surprised if you buy a business at better metrics than buying in your own stock, even at these levels. That's just a comment. And I know your biggest shareholder.

I do appreciate it. And we clearly take that into consideration. And the opportunities that we're looking at are compelling if they come to fruition. I'm not saying that they will. We did buy a quarter of a million shares back in the open market last quarter. And we continue to be opportunistic buyers of our stock.

Okay. Thanks a lot.

Thank you. Thank you.

And your next question comes from the line of [Michael Parter] of [Marner Capital Group]. Please proceed.

Hi, Bruce. Just a few questions. What's the current census up there at Seven Hills?

Yesterday, I believe, the census was 32 or 33 patients.

So, it's about flat with where it was at the end of the first quarter?

It's a little bit higher. The non-cap census is a little bit higher, which is actually the more important census. But the total census is about the same, which is good, which means the cap census is a little bit lower.

Okay. Okay. And is Seven Hills profitable at this census level?

It's not profitable yet.

Okay. And I know you mentioned on the last call with regards to the opportunities with the VA. Do we need the CMS approval in order to move forward with the VA opportunity?

No. We don't. And what I think I mentioned and I can say, we've just recently expanded our VA contract in Utah because the demand had increased the contract from eight beds to 12 beds. And we're looking at a number of different opportunities with the VA in many, many markets.

Okay. Is there something that we think we're going to see come to fruition in the current quarter?

I think probably later in the coming quarter or earlier next quarter. Yes. I think we're going to see some good -- we are seeing -- looking at a very good opportunity (inaudible).

Okay. The Mental Health Parity, I know we've been talking about it for quite some time. It's now coming into effect. You didn't know exactly what that was going to mean when we had the last conference call. Do you have any further color on what it's going to mean to the Company for going forward?

Yes. We've seen draft regulations now. And it's very, very clear to us that it's as strong or stronger than we believed. The co-pays and the (inaudible) in removing barriers with co-pays and lifetime limits are really perfect to our industry. Our association sends us updates basically every day. So everything we're seeing in terms of the draft regulations is very, very positive.

I can tell you that we have seen a little bit of impact in a couple of our facilities where the co-pays have been eliminated. It's not huge yet because it's still rolling out. Remember, the new plan year has to take effect. But we have seen a couple of plans where it has improved.

Okay. So, we're beginning to see right now an improvement due to the Mental Health Parity legislation?

Small as it may be, but yes, we are seeing an improvement.

Okay. Wellplace; you mentioned again in the last earnings release that there were a number of new initiatives of new contracts and a build in the pipeline of new business. Can you give us a little update on where things stand with Wellplace?

We're looking at a couple of expanded government contracts in the Michigan area. Small, but I think in the next three to four months we should have a little bit of closure on that that could be bring in some incremental revenue. Not huge amounts, but some incremental revenue. And, again, as I mentioned, our contract was renewed for another three-year period with an increase taking effect after the first year.

Okay. And then just on the financials, what was the D&A expense and other non-cash expenses for the quarter?

Maybe Paula can look that up while we get to the next question, and --

And the CapEx. And what's your CapEx budget for the balance of the year?

Paula, maybe you can look that up and then get back to Michael post the call and give the exact number.

Okay.

Okay. I'll get back in queue. Thanks, Bruce.

Thank you. Next question, please, operator?

(Operator Instructions). And your next question comes from the line of Russell Cleveland of Renn Capital. Please proceed.

Hello, Bruce. My first time on the call. It took me a while to get into this call. I joined apparently a couple of other calls before I got to PHC. There was one company. I knew I was in the wrong place. They were talking about they had working capital of $108 million. I thought, "Gee. I wonder if this is PHC." So, anyway, here's my question. I'm fairly new to this party. And, of course, I'm excited about the potential of the Company. Do we have a net income pre-tax goal? What should we be making on our revenues in this business?

We do. Our pre-tax goal as a percentage of net revenue is 9% to 11% once the rollout is completed in Las Vegas. It's a percentage that we have experienced in the past when we've been out of the start-up and wait mode. And it's the percentage that our peers have experienced. And so we internally are looking at 10% pre-tax numbers as we roll later into this calendar year.

Okay. So, for the six months we had revenues of $23 million, so --

I think we have a 5% pre-tax number for the first six months.

Right. So, we should be at more than double that.

That's our goal.

Okay.

We have experienced that in the past. So, it's not an unrealistic expectation.

Okay. That's all I had.

Thank you. Operator, it doesn't look like that we have any more questions.

You have no further audio questions at this time.

Great. Well, I'd like to thank you all for joining us. As I said, we're very excited about the results. And we continue to make forward progress, both in top line revenue growth. And obviously a significant improvement, the net income before tax number sequentially after that one-time rent expense increased over 80% from the September quarter. So, we feel very, very strongly that we're moving in the direction that we've been talking about. We appreciate your support. And we look forward to any questions anytime. Thank you so much for joining us, and have a wonderful day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.